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An economy that works STRONG TODAY, GREAT TOMORROW

How we can make the transition to an economy that delivers prosperity, competitiveness and sustainability for British companies and citizens, now and in the future

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“The commercial imperative for action is clear. Our research shows that UK businesses have the opportunity to unlock around £100 billion a year in value from new innovation opportunities that address social and environmental challenges.”1 Marc Bolland, CEO, M &S “Both business and government – as well as NGOs and the media – must re-engage in an authentic conversation on resource-intensity. Energy is a good starting point but it should also cover the development of long-term solutions for a much wider range of issues and resource constraints.”2 Sir Ian Cheshire, CEO, Kingfisher PLC “Everyone expects more of companies now – higher standards of business ethics, more attention to social issues and real evidence of a commitment to tackling climate change. This is a challenge, but one that we as a business want to meet, because being a more sustainable business is better business.”3 Ruby McGregor-Smith CBE, CEO, MITIE “We need leadership; government and industry working together. We are clear on the longer-term goals, but we now need to agree the milestones to reach those goals. This would be important in normal circumstances but it is even more critical, given the difficult economic environment.”4 Steve Holliday, CEO, National Grid


–––––––––––– – – Aldersgate group Members –––––––––––––– An alliance of leaders from business, politics and society that DRIVES ACTION for a sustainable economy

While members support this publication and provided extensive input, individual recommendations cannot be attributed to any single member and the Aldersgate Group takes full responsibility for the views expressed.

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––––––– – – an economy that works –––––––––

A powerful alliance of leaders dedicated to creating a prosperous UK, with a strong economy today and great one tomorrow

Our goal

The Economy That Works campaign

Who is involved?

The ultimate aim of An Economy that Works is to help the UK succeed, both now and in the long term.

Together with this report we will launch a campaign to:

By ‘succeed’ we mean develop an economy that is smart, low carbon and resource efficient. We believe there is no credible alternative in today’s carbon- and resourceconstrained world.

• Encourage individuals to act by offering a positive vision for the future

We are currently building an alliance of the most dynamic, diverse and enlightened UK leaders with the power, determination and drive to turn our vision into reality.

What makes this initiative unique is its systemic approach. Addressing employment issues while ignoring wellbeing problems, or reducing our carbon footprint while not providing opportunities for everyone to share economic benefits will only compound the challenges we face. We need comprehensive solutions. By tackling economic, social and environmental challenges in a holistic way, An Economy That Works offers a positive vision for the future of Britain as well as practical ideas to turn this vision into reality.

• Create an influential and diverse coalition for change

• Deliver more than the sum of its parts by connecting partners with different focus areas • Address the challenges we face in a holistic way – challenges that cannot be solved in isolation

How will we make it happen?

It is a process driven by the Aldersgate Group, a coalition of leaders from business, politics and society that drives action for a sustainable economy. Our members, who include some of the largest companies in the UK, recognise that the best way to meet our objective is to take a systemic approach to environmental challenges.

There are three main stages to our initiative: 1. Build support by bringing together an influential group of thought leaders and encouraging collaboration 2. Create mainstream appeal by raising public awareness through strategic communications and partnerships 3. Advance policy through a process of political and business engagement

The Aldersgate Group has the expertise, contacts and track record to make this initiative a success. We helped introduce mandatory carbon reporting for the London Stock Exchange and played an important role in the formation of the world’s first Green Investment Bank. This initiative builds on our previous success, raising our ambition in line with the challenge.

What happens next? Our first priority is to gather support for our vision. Our partners will then identify shared themes and policy priorities to make it happen. The latest developments will be on the Economy That Works website: www.aneconomythatworks.org

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–––––––––––– ––– – – What exactly is an economy that works? ––––––––––––––––– Through our research we have identified the six core characteristics and four enablers of an economy that works

Core Characteristics The six core characteristics of an economy that works define the fundamental purpose of the economy

High employment

Equality of opportunity

Wellbeing at the core

Low carbon

Zero waste

Enhancing nature

enablers Its success will depend on the following four enablers. An economy that works needs to be: Long term For an economy to work for all, both now and in the future, it must address the problem of short-termism that often prevents business leaders and politicians from making the right economic decisions

Innovative Constant innovation and development are critical to address current needs and adapt to unforeseen changes in the future.

Inclusive Taking into account the perspectives, skills, knowledge and networks of our economy’s active participants is the best way to ensure our goals are shared and strengthened

And it: Strengthens communities Active, resilient communities are vital when it comes to generating solutions and realising change.

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–––––––––––––– – – – Why do we need an economy that works? ––––––––––––––––– The UK economy is at a critical juncture. If we choose our next step wisely, we can have an economy that works; prosperous, competitive and sustainable. On the other hand, if the UK fails to adapt to a changing world we will be forced to play catch up while our competitors reap the rewards of their own economic transition. So our goal is simple: support the creation of a highly skilled, productive and successful economy. By definition, this is smart, low carbon and resource efficient. These attributes are the key to competitiveness in an era increasingly defined by carbon and resource constraints.

The reality is that our economy – indeed any economy – will not thrive if it is: • Vulnerable to spikes in global energy and commodity prices • Unable to secure key resources such as food, water, energy and materials • Threatened by an unstable climate characterised by extreme weather events • Burdened by a high carbon, high resource infrastructure • Depleting natural resources at an unsustainable rate

We believe we are on the verge of a new industrial revolution. The race to create and sell solutions that meet global 21st century needs is well under way. The good news for the UK is that we are in a strong position to lead in many areas and are already reaping the rewards. The danger is that we fall behind in areas where we currently have comparative advantage. In the end, we have a choice: do nothing and have the transition to an economy that works forced upon us in a way that is largely beyond our control, or make positive choices that will create a future that benefits us all. We choose the latter and hope you will too.

The transition to a smart, low carbon and resource efficient economy is inevitable. It is only a question of timing and the course that will take us there. If we fail to act now, the transition will be largely outside our control. We will be on a rudderless ship that moves from climate crisis, to resource crisis to financial crisis and back again. In other words, things are likely to get a lot worse before they get any better. In this report, we advocate a different course, one where we navigate the waters ahead with the skills, knowledge and leadership that will ensure a flourishing transition. The result will create jobs, improve competitiveness and increase prosperity across the whole of the UK. Above all it will work at all levels - environmentally, socially and economically.

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–––––––––––––– – – – The Aldersgate Group

and the Economy That Works initiative

––––––––––––––––– Since our creation in 2006, the Aldersgate Group’s focus has been on providing the economic case for high environmental standards. We have consistently argued that the way a nation addresses the challenges of a resource-constrained world will determine its future economic competitiveness. With this campaign, we are building on existing expertise to discuss employment, equality of opportunity, wellbeing, inclusivity and community. Our work over the last few years has convinced us that only an approach that addresses the system within which we operate - our economy - will deliver lasting solutions to today’s economic, social and environmental challenges. By defining the six core characteristics and four enablers of An Economy That Works we are, in effect, describing the purpose of the economy as we see it. This is the first step in a long-term initiative that will define our work for years to come, just as our first publication, Green Foundations, did in 2006.

We are therefore actively seeking partner organisations willing to take responsibility for parts of this initiative that match their expertise. Our aim is to build an alliance of the most dynamic and enlightened UK leaders from all backgrounds, with the power, determination and drive to turn our mission into reality. We already have the backing of some of the UK’s largest companies, NGOs, trade unions and professional bodies, as well as MPs from across the political spectrum, and we hope to build further support through this initiative. As the Aldersgate Group, we will play a central role in driving the initiative, but with regard to policy development and advocacy we will remain focused on supporting the delivery of the low carbon, zero waste and nature enhancing characteristics of An Economy That Works.

Our invitation If you like what you read in this report we invite you to become part of An Economy That Works. Joining us means you will: • Be part of a wide-ranging alliance dedicated to creating long-term sustainable growth that is in our collective interests • Ensure that your specific priorities and interests are taken into account • Underpin your own objectives with a systemic overview of the economy, helping to join the dots • Collaborate with prominent organisations to address shared challenges • Be more influential as a collective that has greater reach than the sum of its parts • Engage in thought leadership with your peers interested in creating a long-term, prosperous and resilient future for the UK

At the same time we acknowledge that the ambitions described in this report are beyond the power of any single organisation to achieve. An Economy That Works offers a broad vision of success for the UK and as such has a remit that goes beyond the environmental focus of the Aldersgate Group.

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––––– ––– – – It is already happening ––––––––––

Value to the UK Economy The UK environmental goods and services sector contributes 9.3% to the UK economy 5

£122 billion

Although ambitious, the ideas contained in An Economy that Works are achievable

9.3% of total economy

Net Positive Impact Pioneering companies are committing not only to doing less harm but making a “net positive” contribution to society

3: 1

We will help ...BT’s own customers carbon emissions reduce carbon by three times...

Kingfisher: Net Positive7

BT: Net Good8

Circular Economy £5.6 bn UK opportunity in Remanufacturing – refurbishing products at the end of their lives11

The examples in this section show how a number of forward-thinking sectors and companies are already delivering an economy that works. That is not to say the battle is won; fully capitalising and scaling up the opportunities will require bold action and new partnerships between governments, business and civil society.

£5.6bn

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• New product development • Market share growth • Increased customer loyalty

3

nefits fo l be rE tia

€100bn

yearly extra profit before tax for manufacturers

1,200

MtCO2e p.a. reduction in greenhouse gas emissions (14.6% of Europe’s total)

168,000 new skilled jobs

• Increased customer loyalty

Reporting & Transparency Companies are translating social and environmental impacts into annual reports to show shareholders how sustainability approaches can deliver value. The International Integrated Reporting Council is promoting the integration of sustainability impacts in annual reports9

• Potential 20% improvement in energy efficiency • Potential 3% saving in materials

ope ur

Commercialise competitive advantages

Pot en

1

Improve non-labour resource efficiency

2

Invest in sustainable inputs

A New Industrial Model A new, more profitable and sustainable business model has emerged from companies such as Unilever, Body Shop, Patagonia, Ecover and Interface. The potential for the whole European manufacturing sector is estimated to be €100 bn per annum increased profit before tax with 168,000 new skilled and mostly local jobs6

• Use 100% renewable energy • Use recycled and bio-based materials

Smart Cities ICT (Information & Communications Technology) can help reduce carbon emissions by 16.5% by 2020 saving £1tn. The global market for smart cities is estimated to exceed $400 bn by 2020, with the UK expected to gain a 10% market share ($40 bn)10

Automotive: Investing in Sustainability Jaguar Land Rover is the largest automobile R&D investor in the UK, spending £2.75 bn in 13 –14. As a result, the All-New Range Rover is 39% lighter with 26% lower tailpipe emissions. The business employs 24,000 people in the UK and supports approx 190,000 more12

Offshore Wind There are currently 4,000 jobs in the offshore wind sector, which the Government predicts could grow to a possible 30,000 jobs by 202013

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––––––– – –––––––– – High employment ––––––––––––––––– In An Economy That Works, there will be sufficient jobs of good quality to ensure that people need not be out of work for more than short periods, and can plan their lives in the expectation that each of them can gain financial independence and personal fulfilment

Why it matters The UK can only benefit from having a large number of people in highly skilled, well paid jobs. High employment levels increase financial independence, wellbeing and personal satisfaction for individuals while improving equality across society and raising tax revenues for government. Recent figures show an improvement in the number of people in work. While this is welcome, significant problems remain: the number of young people out of work remains high and job growth is distributed unevenly across the UK. There are problems, too, around the issue of needing to work long hours just to make ends meet, lack of job security and wanting full-time work but only getting part-time jobs.

Fulfilling potential: Some demographic groups, such as women and ethnic minorities, are badly under-represented in leadership positions. This creates demographic imbalances, reducing the diversity of the UK’s talent pool and stifling innovation. Work-life balance: Research shows that the relationship between income and wellbeing follows a classic bell curve: wellbeing rises as income rises to a certain point, beyond which wellbeing starts to decrease.

A similar correlation exists between working hours and wellbeing.17 Research by the New Economics Foundation shows that those who work over 55 hours a week experience higher anxiety and lower wellbeing.18

What is in it for the UK economy? While the individual benefits of employment are clear, there are also substantial macro-economic rewards: • More productive economy: Increases in the productive capacity of the economy and higher spending power inevitably boost economic activity • Skills development: An economy that works will enable individuals to develop the skills that businesses are currently lacking19 • Healthier national budget: Rising income tax receipts and spending will contribute to the national budget • Higher quality of life: Reducing unemployment increases wellbeing and helps reduce social and economic deprivation

What about business? Addressing high employment means giving more people the opportunities to fulfil their potential and giving others the opportunity to reduce overwork. More people in work: By the end of 2013 the UK’s employment rate was 72.1%15. This is reasonably healthy, but still lags behind some of our European peers.16 Certain groups, including the long-term sick, the disabled and young people, struggle to find work. For example there are over one million young people who are so-called ‘NEETS’ (Not in Education, Employment or Training) for whom full-time work is a remote prospect, and this figure is rising as the chart opposite shows.

What success looks like An economy that works will provide higher levels of employment across the UK, creating new jobs and opportunities for groups such as school leavers, with the flexibility for people to work hours that match their aspirations.

Business is the main source of employment in the UK, with over 80% of jobs in the private sector. As such, its role in achieving high levels of employment is critical. Business needs a stable and motivated workforce, leading the way in know-how and expertise and making the UK a more attractive place for investment. Business can play its part by investing in skills and training, enabling the economy to compete. Initiatives such as the 5% Club and M&S’ ‘Make your Mark’ youth scheme are already helping younger workers make the move into employment. Shifting to high labour, low resource circular models will also boost employment, while support for flexible employment models will enable more people with outside commitments to enter the workplace.

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“ ” As a major employer, a parent and a citizen of a country where so many young people are in danger of getting lost, I care passionately about developing the right skills that our country needs. Steve Holliday, CEO, National Grid 14

What policy interventions can help achieve this?

Proportion of 16–24 year olds not in education, employment or training (NEET)20

Promote skills development by providing strategic leadership and long-term direction, for instance through investment in training, supporting training institutions and driving demand for skills in a way that helps vulnerable groups.

20

Using tax policies to make it easier for employers to hire or train additional staff – particularly from those groups who struggle in the labour market.

17

2012

14

11

No rth Ea st No rth W es t So uth Ea st So uth W es W t es tM idl an Yo ds rks & Hu mb er

8

Ea st of En gla nd Ea st M idl an ds

Provide education as continued investment in education will help school leavers acquire the skills and qualifications they need to find work.

Proportion of young people (%)

Promote flexible/part-time work as job-sharing and part-time work can increase the number of jobs available while also improving wellbeing and spreading skills.

2002

Lo nd on

Investment in job generation schemes to promote employment, make people job-ready, and to support small and medium-sized enterprises that account for over half the UK’s employment.

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––––––– – –––––––––– –––– Equality of opportunity –––––––––––––––––––––– Equality of access and opportunity are key elements of an economy that works. The result will increase fairness across society, boost personal wellbeing and improve security and economic stability

Why it matters

What success looks like

What about business?

Equality of opportunity underpins many components of an economy that works, including the stability of the economy as a whole. With equal opportunities, citizens can compete fairly for limited resources ensuring a more effective society as achievement is based on merit and skill. It is closely correlated with equality. Specifically, it will contribute to:

A society characterised by increased equality of opportunity would enjoy more social and economic mobility for all population groups through improved access to jobs, healthcare, education, finance and democratic representation. Such a society is characterised by meritocracy, inclusivity and non-discrimination.

Increasing equality of opportunity will directly benefit British business. It will ensure UK companies have the skilled workforce they need in order to thrive in the long term. It will boost productivity29 by increasing staff loyalty. And it will mean more people have more disposable income to buy the products and services business produces. In short, by increasing equality of opportunity everyone wins.

Economic stability: An International Monetary Fund (IMF) study found that income inequality has a higher correlation with economic instability and crises than most other factors, whereas more equal societies tend to have longer periods of sustained growth.22

What is in it for the UK economy? Greater equality of opportunity would bring with it a range of tangible economic benefits, from greater innovation and productivity to lower costs through fewer wasted human resources.

What can business do to increase equality of opportunity?

According to another IMF study, “lower net inequality is robustly correlated with faster and more durable growth”.23

According to research by Wilkinson and Pickett, higher equality can lead to enhanced wellbeing, less social unrest and fewer health problems. Improvements could be expected in crime, mental illness and obesity,27 while the Women & Work Commission found that realising women’s full economic potential could be worth £23 bn a year to the Exchequer.28

• Offer employment and development opportunities to individuals from disadvantaged communities

Reduced household debt: Research has shown a correlation between inequality and levels of personal and institutional debt.24

• Support the development of skills across all levels

• Address gender inequality in senior management • Make finance accessible to individuals and businesses from disadvantaged backgrounds • Commit to support legislation for a living wage

Increased wellbeing: Further research highlights the correlation between a range of health and social problems and inequality.25 These include reduced life expectancy, poor math and literacy skills, high infant mortality, as well as increased homicides, imprisonment, teenage births, obesity, mental illness (including drug and alcohol addiction) and poor social mobility.

According to the OECD, the UK has one of the highest levels of income inequality amongst its members. This polarisation of income has been increasing since the mid 1990s.26

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“ ” People are much more willing to give of themselves when they feel that their selves are being fully recognized and embraced. We’re committed to creating a safe and welcoming workplace for all employees, regardless of their race, gender, nationality or sexual orientation. Tim Cook, CEO, Apple 21

What policy interventions can help achieve this?

While some policy interventions can have negative effects, such as the impact of increasing wages on profitability and competitiveness, OECD analysis highlights that a number of interventions offer a so-called ‘double-dividend’, where reducing inequality can also help boost long-term GDP per capita. To realise this double-dividend, an economy that works needs to examine:

IMF STUDY ON THE Relative Effect of income Distribution on Growth Spell Duration30

60.0

• Education policies: Promoting equal access to education and increasing graduation rates from secondary and tertiary education

• Tax evasion: Ensure that government revenue is maximised by enhanced collection and enforcement of UK tax receipts • Living wage levels: This will help all those in employment to cover basic costs • Access opportunities: Address forms of exclusion that reduce opportunity such as lack of access to capital, resources and services

Percent Change in Expected Growth Duration

• Fiscal measures: Reducing income tax and/or national insurance contributions will reduce the cost of employment, creating jobs and enabling net income to rise. Any reduction in government revenue can be offset through increasing taxes on high-carbon and scarce natural resources

50.0

Income Distribution

Trade Openness

40.0 30.0

Political Institutions

20.0 10.0

FDI Exchange Rate Competitiveness

External Debt

0.0

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––––––– – ––––– – ––––––– Wellbeing at the core ––––––––––––––––––––– Wellbeing is a central policy objective in An Economy that Works. The aim is to ensure everyone has the security of knowing their material needs will be met, supported by a strong healthcare and education system that can help them achieve their personal goals within strong social networks and through active participation in democratic institutions

Why it matters

What success looks like

The need to measure wellbeing grew out of the recognition that Gross Domestic Product (GDP) alone is not a comprehensive measure of prosperity. In the words of the Office of National Statistics (ONS), to really understand our economic performance we need a “fuller picture of how society is doing by supplementing existing economic, social and environmental measures.” 32

A successful approach to wellbeing would see it treated as a central policy objective, reported on by government and the media and influencing key decisions in other areas.

Many organisations have attempted to define and measure wellbeing, ranging from subjective aspects such as happiness to more tangible elements including living conditions and economic wellbeing.33 The graph opposite, developed by Deutsche Bank, captures these multiple dimensions. In the UK, the ONS Measures of National Wellbeing identified 41 wellbeing indicators grouped into 10 categories following a large-scale public consultation: 34 Health

Education and skills

Our relationships

The economy

What we do

Governance

Where we live

Natural environment

Personal finance

Individual wellbeing

These categories reflect a number of issues we explore in this report and combine a subjective assessment of wellbeing with an assessment of objective factors that directly influence individual happiness.

What is in it for the UK economy? • A more productive, healthy and effective workforce: the UK’s annual 130 mn days of sickness absence cost the economy £100 bn.35 Focusing on wellbeing could significantly reduce this figure • An economy with wellbeing as one of its goals would make the UK a more attractive place to live, work and do business • Greater wellbeing is likely to reduce public spending in healthcare and crime prevention • A greater focus on wellbeing would create opportunities through services required to promote wellbeing

What about business? A greater sense of wellbeing will benefit business through: • Increased productivity: According to research by Towers Watson, individuals with high wellbeing make more productive and innovative employees, helping create operating margins for their employers that are almost three times higher than those reported by equivalent companies with low engagement and wellbeing amongst staff 36

• Revenue growth: A focus on wellbeing provides growth opportunities for companies in the health, wellness, education and personal development sectors • Employee attraction and retention: If the UK is perceived as having high wellbeing, it will become easier for UK-based companies to attract and retain the most talented employees How can business support societal wellbeing? Analysis by the New Economics Foundation highlights work-related aspects of wellbeing which business can influence. These include pay, job security, safety, relationships and work-life balance. Building on this research, businesses can support societal wellbeing by:

• Measuring and managing performance around the issues mentioned above • Promoting a work environment that raises mental wellbeing – such as training and stress management – as well as physical wellbeing 37 • Adopting business practices that do not negatively impact important contributors to wellbeing such as the environment • Strengthening job and income security • Identifying revenue generation opportunities that result in greater wellbeing • Extending ‘sustainability reporting’ to include wellbeing indicators

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“ ” Instead of the goal of maximum linear growth in GDP, we should be thinking of maximum wellbeing for minimal planetary input. Sir Ian Cheshire, CEO, Kingfisher plc 31

What policy interventions CAN help achieve this?

Through the development of the ONS’s Wellbeing measures an important first step has been taken. Going forward, key policy objectives should focus on:

The many elements of happiness and wellbeing39

• Making wellbeing a core policy objective by acknowledging the role of government to increase the wellbeing of its citizens and integrating wellbeing considerations into all aspects of policy making

• Measuring wellbeing in a consistent way in order to know what is important and how to influence it

• Developing an integrated wellbeing indicator to provide a regular snapshot of how the UK is performing • Strengthening civil society and active citizenship, participation and engagement • Focusing the health sector on complete health. The World Health Organisation (WHO) defines health as “a state of complete physical, mental and social wellbeing and not merely the absence of disease or infirmity”.38 This includes a stronger focus on mental illness and longevity

Happiness genetics family

Living conditions

Economic wellbeing

friends work satisfaction

health (inequality)

depreciation

leisure

environment

activities

GDP

consumption

wealth

net investment

non-market activity

education

community ties

net income going to foreigners regrettables

(unemployment) (insecurity)

Words in parentheses point to negative impacts

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––– –– – ––– ––– –– Low carbon –––––––––––––– An economy that works must be low carbon. There is no other alternative in an increasingly carbon constrained world. This will increase resilience, providing food, water and climate security, and drive growth

Why it matters The long-term cost of failing to address climate change is recognised by businesses and governments around the world. The UK aims to reduce its greenhouse gas emissions by 80% (based on a 1990 baseline) by 2050. This challenge opens up opportunities for the UK economy, to achieve more efficient energy use and develop new technologies and skills for export markets. The latest IPCC impacts report makes it clear that “climate-change impacts are projected to slow down economic growth […] further erode food security […] and will create new poverty pockets in uppermiddle- to high-income countries in which inequality is increasing”.41

What does success look like? A low carbon economy requires substantial emissions reductions in the most carbon intensive sectors. These include power generation, industrial activity, transportation, housing, services and agriculture. The Committee on Climate Change has set out measures to reduce emissions from these sectors, ranging from developing more fuel-efficient vehicles and buildings to zero carbon energy generation.

The UK has an opportunity to lead the transition to a low carbon economy thanks to its industrial expertise and research strength in biotechnology, maths, advanced materials, control systems, electronics, engine technology and energy management. However, a number of indices demonstrate that the UK is falling behind and being overtaken by competitors. We need to reverse this trend and maintain our leadership position.44 Reducing long-term energy costs and risks: Low carbon energy costs will decrease relative to other sources in a number of areas, thanks to a combination of increased energy efficiency, self-sufficiency and the rising price of conventional fuel. For example, the Carbon Trust estimates that savings to the UK from reducing emissions from non-domestic buildings will reach £4.5 bn by 2020, with reductions of 70 –75% possible at no net cost.45

What about business? UK businesses are clear about the economic logic for tackling climate change. According to the CBI: “The business response is definitive and emphatic: green is not just complementary to growth, but a vital driver of it.”46 Benefits to business include: Revenue growth: Global investment in clean technology is currently around $ 300 bn a year.47 Research by the EU demonstrates that strong targets for renewables and energy efficiency in 2030 would create over half a million new jobs and save €258 bn on imported fossil fuels.48 UK industries that can benefit include finance, automotive, aerospace, ICT, renewables, construction, retail, business services, life sciences, resource management and many more. Innovation: A low carbon economy will drive the development of new technologies and skills. The UK financial sector can play a key role in funding the necessary investment.

Security: Fuel costs are rising around the world. Developing greater energy self-sufficiency will help the UK mitigate some of these increases and make us less dependent on overseas providers.

Productivity: Businesses will benefit from reduced costs as greater energy efficiency makes them more competitive globally.

Wellbeing: Reducing the threat of climate change will reduce the risk of potential health effects and inequalities.

Exports: The UK already runs a surplus on green goods and services. Around the world more countries are investing in low carbon technology.

What is in it for the UK economy? Growth, jobs and competitiveness: Many countries are decarbonising their economies. The green economy already delivers a £5 bn trade surplus to the UK and provides around 940,000 jobs.42 As the chart opposite shows, green exports are substantial and expected to halve the UK’s trade deficit in 2014–15.43

Finance: There is an opportunity to develop investment vehicles that fully integrate the risks and opportunities related to climate change. Competitive advantage: Addressing the strategic, regulatory and reputational drivers will enhance a company’s ability to compete.

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“ ” There is a hard-nosed economic argument that moving to a low-carbon economy can drive significant business investment and create many new jobs across the country. John Cridland, Director General, CBI 40

What policy interventions CAN help achieve this?

The three most important areas for low carbon policy development are:

Strength of the UK’s green export markets49

Effective carbon pricing: Emissions trading schemes have merit, in spite of the lack of effectiveness of the EU ETS. But to make real impact we need a trading scheme with the right incentives for business. Adopting a simple carbon tax could also raise the price of carbon. Both have the potential to reduce emissions and raise revenues. Promote low carbon technologies and innovation: The long-term benefits of low carbon technologies are widely accepted, but the slow shift away from our high-carbon path is limiting the development of these technologies. Addressing this requires:

Germany £291m

USA £331m

Japan £358m

• Focusing R&D policies on rewarding low carbon innovation via research grants, innovation prizes, patents and tax credits • Supporting low carbon technologies via feed-in tariffs or renewables certificate systems • Developing carbon capture and storage

China £794m

India £412m Brazil £232m

• Supporting community energy projects • Encouraging a shift to low carbon transport technologies and models Removing barriers to low carbon behaviour and investment:

• Long-term policy security to support long-term investment decisions • Shifting government subsidies away from fossil fuels and towards low carbon alternatives • Introducing ambitious low carbon and energy efficiency requirements in infrastructure projects

The UK exported low carbon and environmental goods and services to 52 countries in 2010–11, totalling £11.8 bn

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WHAT WHY

is An Economy That Works?

do we need An Economy That Works?

An economy that delivers prosperity, competitiveness and sustainability for British companies and citizens to thrive now and in the future

To address today’s economic, social and environmental challenges in a systemic way by redefining the fundamental purpose of the economy

HOW

will we achieve An Economy That Works? By supporting the integration of the Economy That Works characteristics and enablers into UK policy and business strategy going forward

CHARACTERISTICS ENABLERS

HIGH EMPLOYMENT EQ

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INNOVATIVE

ENHA NCI NG NA TU

LONG TERM

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INCLUSIVE

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LO W CARBON

COMMUNITY

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––––––– – –––––––––– – an economy that works –––––––––––––––––––

An economy that works

Resource security

LB

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TY RTUNI PPO FO YO LI T UA

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Initiated by


–––– – ––– ––––––– Zero waste ––––––––––––––– Fossil fuels, minerals, land and water are all being depleted due to the increasing demands of a growing global population. This is causing critical resource and security challenges, as well as increasing landfill and pollution. To address these problems our industrial and agricultural systems need to eliminate waste and be restorative by design

Why it matters

What is in it for the UK economy?

Resource depletion. For many years global economic growth has relied largely on the availability of cheap energy and raw materials. Between 45 – 60 bn tonnes of raw materials are extracted from the earth every year.51 With demand for material goods increasing and reserves of raw materials being finite, reducing resource use is becoming a key driver for competitiveness and resilience.

An economy that takes waste out of the equation will: • Create jobs and spur innovation53 as economic activity shifts from resource and energy intensive production processes to more labour intensive remanufacturing processes. There are a potential 314,000 new manufacturing jobs based on this model 54 • Reduce net material costs and drive resource productivity. Estimates suggest an additional £10 bn in annual profits for manufacturers 55

Accumulation of waste to landfill. WRAP estimates that of the 600 mn tonnes of products and materials that enter the UK economy each year, only 115 mn tonnes are recycled. This costs money – an estimated £3.2 bn to local authorities in 2011–12 – while creating significant environmental damage. By pursuing opportunities for re-use, the UK could reduce its reliance on raw materials, such as rare earths, by as much as 20% by 2020.

• Reduce waste to landfill with its associated financial and environmental costs, including reducing up to 27 mn tonnes of CO2 equivalent greenhouse gases every year 56

What success looks like

What about business?

An Economy That Works would promote durable products designed and produced so that they can be repaired, re-used and recycled. At the end of their usable lives products could be disassembled and remanufactured, while others could be recycled or composted, reducing waste sent to landfill. This dynamic is known as a circular economy, which is restorative by intention and design, in which products do not quickly become waste but are reused to extract their maximum value before safely and productively returning to the biosphere.52

A zero waste economy can bring many benefits including: 57

• Increase the supply of raw materials through recycling, reducing the UK’s dependency on imports and potentially lowering prices

• Revenue growth through the development and commercialisation of resource and waste management systems • Circular production models that reduce materials costs while building products that last can reduce the costs of warranties • Increased profitability through remanufacturing where reduced raw material and processing costs both outweigh increased labour costs58 • Reduced exposure to resource scarcity risks

• Brand differentiation through sustainability practices and greater engagement with customers through product take-back and re-use models How business can contribute to a zero waste economy

• New consumption models: “The circular economy advocates the need for a ‘functional service’ model in which manufacturers or retailers increasingly retain the ownership of their products and, where possible, act as service providers – selling the use of products, not simply their consumption.”59 Such models include the shift from products to services and the increased sharing of products for multiple use • Product and services development: Businesses can develop opportunities by embedding these models in their product and services development cycles. In order to take advantage of these benefits, businesses will need to collaborate at every step of the value chain. They will also need to adapt their aftersales approach and ensure the traceability of components and materials • Disclosure: Transparent disclosure of material throughput and a company’s exposure to resource scarcity in their annual and sustainability reports will help generate support for a zero waste economy in the investor community • Finance: Develop investment vehicles that reward zero waste business models based on their reduced reliance on scarce resources

–––––––––––––––––––––––––––––––––––––––––––––– 20


The world economy is $72 tn in size and if we applied the circular economy, this would lead to at least $1 tn in savings now – and it can become significantly higher. Dominic Barton, MD McKinsey & Company 50

What policy interventions can help achieve this? The recommendations from the Circular Economy Task Force, a government-supported, businessled group convened by Green Alliance, suggest the following government interventions:60

From Linear to Circular61

Source ‘The Ellen MacArthur Foundation’

Linear Economy

1. Clarify exposure to risk

• Conduct a government-led study into exposure to material insecurity, starting with sectors identified by the industrial strategy as those most able to contribute to growth • Require Environmental Product Declarations (EPDs) based on a unified methodology across the EU

TAKE

MAKE

DISPOSE

WASTE WASTE WASTE

TECHNICAL & BIOLOGICAL MATERIALS MIXED UP

ENERGY FROM FINITE SOURCES 2. Broker co-operation

Circular Economy

3. Enable system design

EN

RIC

ET

R

• Use landfill bans as the intervention of last resort for high volume, low value materials

Cu Zn

USE

• Implement stricter Individual Producer Responsibility • Set re-use, recycling, collection and disassembly requirements

E AK M

E AK NSUME CO

M

• Create sector specific road maps using the industrial strategy model for government and industry collaboration, piloted through the delivery phase of existing industrial strategies

H

• Set green public procurement rules specifying more circular products

BIOLOGICAL MATERIALS

• Promote design that enhances repairability, recyclability and disassembly

ENERGY FROM RENEWABLE SOURCES

UR

N

TECHNICAL MATERIALS

–––––––––––––––––––––––––––––––––––––––––––––– 21


––– –– – ––––––– – –––– Enhancing Nature –––––––––––––––––– In an economy that works, a healthy natural world provides the foundation for a flourishing economy, while economic activity helps protect, enhance and restore ecosystems

Why it matters

What is in it for the UK economy?

What about business?

Ecosystems are formed by the interaction of living creatures with their environment. Although intrinsically valuable, ecosystems also provide the natural capital which underpins our economy. The Natural Capital Committee defines ‘natural capital’ as the elements of nature that produce value for people, such as forests, water, land, minerals and oceans. These benefit us in many ways, providing us with food, clean air, wildlife, energy, wood, recreation and protection from hazards.

To understand the economic benefit we need to take a step back and understand what the UK National Ecosystem Assessment describes as “ecosystem services”. These include:

The UK’s natural capital underpins our economic development. Maintaining our natural capital makes good business sense, making our supply chains more resilient and providing a source of competitive advantage to the UK.

In its latest report, the Committee highlights areas that are at particular risk and could undermine the health of our economy. These are clean water, wildlife, carbon storage, hazard protection, recreation, clean air and marine fisheries.63 According to the TEEB Study, between US$1.9 and 4.5 tn of value is lost each year through deforestation alone.64 Ecosystems intersect with the economy in three main ways: they contribute to economic value, their natural capital can depreciate through economic activity 65, and response measures to restore ecosystems can have wider economic effects.

What success looks like An Economy That Works would explicitly recognise and maintain the benefits that ecosystems provide. It would protect land and other natural resources while preventing the loss of plants and animal species. It would also recognise the costs associated with not protecting ecosystems, such as loss of climate change adaptation functions and depletion of resources.

• Provisioning services, for example the goods obtained from ecosystems such as food and water from rivers, lakes and aquifers • Regulating services that include pollination, control of pests and diseases, as well as climate and hazard regulation • Supporting services that provide the basic infrastructure of life, such as soil formation and capturing the sun’s energy • Cultural services in the form of places where we can enjoy the natural world While valuing ecosystem services is challenging, the UK has carried out a provisional assessment:66

As well as general advantages, specific revenue opportunities arise from a more diverse and wellprotected ecosystem, such as organic products, sustainable timber and eco-tourism. Furthermore the protection of ecosystems is a growing industry. For instance, global certification and offsetting markets are rapidly expanding and are predicted to be worth in excess of U$250 bn by 2020.69 Ecosystems support innovation, both through the replication of natural processes at industrial scale and through the medicinal properties of fauna and flora.

• Terrestrial, wetland and marine biodiversity deliver or underpin ecosystem services believed to be worth in excess of £3 bn annually

Employers benefit from a healthy workforce that has access to green spaces.

• Carbon sequestration by UK woodland is worth £680 mn, while pollination services are worth £430 mn

Conversely, being associated with damage to ecosystems creates huge reputational risks for businesses.

• UK fish landings are valued at £600 mn per annum • Safe, green spaces may be as effective as prescription drugs in treating some forms of mental illnesses which cost the UK economy over £26 bn67 • Air and noise pollution are detrimental to wellbeing68

How can business help achieve a biodiverse economy

• Promote agricultural practices that conserve soil fertility and maximise value for society across all ecosystem services • Develop policies that ensure environmental impacts are integrated into planning and accounting systems

–––––––––––––––––––––––––––––––––––––––––––––– 22


“ ” CEOs have a vital leadership role to play and an opportunity to join the growing number engaging with this topic of ever increasing global importance. The urgency of the debate on how to value and manage our natural capital is unquestionable. Katherine Garrett-Cox, CEO, Alliance Trust 62

• Use natural capital accounting to measure the impact of environmental risk on business operations and integrate this into annual reports

Ecosystem services71

• Apply best practice standards of environmental protection in financing infrastructure and industrial development, such as those defined by the IFC 70 • Work with local communities and authorities to develop joint stewardship approaches

What policy interventions can help achieve this?

• Develop a long-term ecosystems recovery plan that values, protects and enhances natural capital

• Make no net loss of biodiversity an explicit policy target, and aim for net gains in biodiversity and protection of threatened ecosystems • Identify and avoid thresholds beyond which biodiversity cannot be restored and/or its contribution to ecosystem services is significantly diminished – such as wild fish stock collapse • Develop policies to stay within these margins, including the targeted use of markets, standards, subsidies, taxes and protected zones, as well as ensuring government procurement promotes the protection of nature • Strengthen the government’s handling of biodiversity by including the economic value of natural capital in the national accounts, with a natural capital budget presented by the Chancellor of the Exchequer alongside the fiscal budget

Provisioning services

Regulating services

The products obtained from ecosystems, including food, fibre, fuel, genetic resources, bio-chemicals, natural medicines, pharmaceuticals, ornamental resources and fresh water

The benefits obtained from the regulation of ecosystem processes, including air quality, climate, water, erosion, disease, pest, pollination, natural hazard as well as water purification

Supporting services

Cultural services

The services that are necessary for the production of all other ecosystem services including soil formation, photosynthesis, primary production, nutrient cycling and water cycling

The non-material benefits people obtain from ecosystems through spiritual enrichment, cognitive development, reflection, recreation and aesthetic experiences – thereby taking account of landscape values

–––––––––––––––––––––––––––––––––––––––––––––– 23


–––– – ––– ––––––– Long term ––––––––––––––– If we want an economy with the potential to succeed in the long term, it is essential we address the chronic short-termism that often prevents business leaders and politicians from making the right economic decisions

Why it matters Long-term prosperity requires careful planning, and while we cannot predict the future, we can get an idea of the shape of things to come by looking at global forces of change – so called ‘megatrends’. Good management involves managing for the short and long term simultaneously. In other words, it means being able to address current priorities without losing our ability to meet long-term objectives. In recent years, business and political decision making has been skewed towards short-term gain at the expense of long-term resilience. Yet this ability to focus on the long term is one of the key characteristics of true leadership. In the words of the ancient Greek proverb: “A society grows great when old men plant trees whose shade they know they will never sit in”. Many of the challenges we face require leadership and long-term vision, such as the urgent renewal of the UK’s infrastructure (including energy, transport, water and ICT). The Kay Review found that shorttermism in capital markets is increasing, with a trend away from an engaged, long-term investor and towards the anonymous, short-term trader. The average UK equity holding has fallen from eight years in the 1960s to seven months in 2007. As a result, short-termism has become “a characteristic of corporate leadership, and may be characterised both as a tendency to under-investment, whether in physical assets or in intangibles such as product development, employee skills and reputation with customers, and as hyperactive behaviour by executives

whose corporate strategy focuses on restructuring, financial re-engineering or mergers and acquisitions at the expense of developing the fundamental operational capabilities of the business.”73

of the British economy by improving the energy, transport, communications and water systems which make a substantial contribution to the costs of consumers and businesses.”74

What success looks like

What about business?

• Increased investment and R&D budgets to address long-term needs

Long-term thinking provides critical business security. It enables business to identify potential opportunities, become more resilient and make informed investment decisions that will deliver value for years to come.

• Long-term impacts taken into account when making policy and business strategy decisions • Reduced national and household debt and increased long-term investments • Increased resilience to economic boom-and-bust cycles by increasing savings • Increased competitiveness as Britain develops the technologies and processes needed by our trading partners to develop their infrastructure • The UK rated a top location to do business in

What is in it for the UK economy? Ultimately, the transition to an economy that works can only happen if we take a long-term perspective. While there will be some difficult choices to make, the prize is substantial – a better future for Britain and its people. Policy Exchange highlights, “Long-term infrastructure investment has significant advantages over attempts to boost consumption. The key difference from a macroeconomic perspective is that it creates assets to offset against the borrowing, while at the same time contributing to aggregate demand. But it has an additional and, arguably, more important role: it addresses the productivity and competitiveness

How can business help create a long-term economy?

• Reward long-term performance in share options and fund performance remuneration • Improve communications with investors to reduce the financial community’s reliance on quarterly reporting as a proxy for performance • Build products that last longer and create new revenue streams through enhanced service offerings • Provide information to investors so they can build models that adequately account for longterm performance • Provide a clear long-term vision of success, such as this report, the World Business Council for Sustainable Development’s Vision 2050 or M&S’ sustainable business plan opposite

–––––––––––––––––––––––––––––––––––––––––––––– 24


“ ” As a UK business with long term customer commitments we cannot just focus on today; we must be a good ancestor. Mark Wilson, Group CEO, Aviva 72

What policy interventions can help achieve this?

• Create strong and continually evolving business policies that identify growth sectors and use a range of funding, fiscal and training interventions to help new enterprises expand

M&S’s long-term plan to make the business more sustainable75

• Ensure long-term planning is insulated from short-term political agendas or electoral terms, for instance through statutory requirements

The business that is carbon positive, wastes nothing, restores the natural environment and improves people’s lives.

• Revise the way long-term benefits are valued in economic models, focusing on discount rates, accounting for natural capital and the forward costs associated with key resource use

Apply Plan A principles to every one of the 2.7 bn M&S items, 1000’s of factories and 10,000’s of farms. Enabling all 21mn customers to get engaged supported by 80 additional commitments to add to the existing 100. £135 mn, Net financial benefit generated from Plan A in 2013.76

• Redefine fiduciary duty to strengthen long-term performance • Redefine corporate and asset manager incentives to reward long-term performance

Sustainable Business 2015-30

100 commitments, strong business case emerges, lessons learnt on greening stores, factories and farms.

• Consider transaction fees to dissuade extreme short-term trading • Reduce obsolescence by extending warranty periods to reward greater product longevity

Plan A 2010-15

Single issues managed by team on edge of business.

Business sustainability

Plan A CSR 2000s

Philanthropy 1980s

Community investment 1990s

Time

–––––––––––––––––––––––––––––––––––––––––––––– 25 25


––– –– –––––––– – Innovative –––––––––––––– In an economy that works, constant innovation – and the ability to exploit it – is critical to success

Why it matters

What success looks like

We may not be able to predict the future, but we do know that we face an ever increasing pace of change. Adapting to changes requires regular innovation to build resilience and enable our economy to thrive.

Innovation is often related to R&D spend but it is more complex than that. A couple of international indices give us a strong indication of key success criteria:

According to the OECD “Much of the rise in living standards is due to innovation – this has been the case since the Industrial Revolution. Today, innovative performance is a crucial factor in determining competitiveness and national progress. Moreover, innovation is important to help address global challenges, such as climate change and sustainable development.”78 Today, because of environmental pressures, we face a new innovation challenge: how to maintain quality of life while reversing environmental damage. There are many types of innovation: • Product innovation: creating a product or service that did not exist before, such as the hybrid car engine • Process innovation: changing the way existing products and services are made or delivered, for instance, online shopping • Business model innovation: changing the way a company makes money. For instance, when Apple introduced iTunes it changed its business model from a hardware and software producer to a digital download provider • Governance innovation: addressing the core institutions and frameworks that govern how major decisions are made, for example through devolved governments in Ireland, Scotland and Wales

The Global Innovation Index, a study from Insead Business School, Cornell University and the World Intellectual Property Organization, measures how innovative countries are by evaluating five input measures that support future innovation, and two output measures that assess the extent of innovation achieved. These are broken down into further subcomponents as shown opposite. In the 2013 Innovation Index, the UK ranked third out of 142 nations, but worryingly ranked 60th in innovation efficiency, an indicator of future success. The UK’s efficiency ranking shows that we get less out of our innovative capability than Nigeria, India, China and Germany. The EU’s Innovation Union Scoreboard assesses strengths and weaknesses of research and innovation systems for EU Member States. The UK is described as an “Innovation follower” ranking close to that of the EU average, but lagging behind Germany, the Netherlands and Scandinavia.79

What is in it for the UK economy? In 1950 there were 412,000 patent applications worldwide; in 2011 there were 1.9 mn. The 21st century is likely to see more innovation than the previous 500 years.80 UK growth and competitiveness will improve in line with our ability to exploit innovation. For instance,

Green Alliance estimates that cleantech innovation could save the UK up to £160 bn in energy supply costs by 2050 and increase GDP for UK based businesses by up to £89 bn.81

What about business? Innovation can deliver two main benefits for business: Competitive advantage: Sustainability is a key driver of innovation and profitability. Of particular interest to business are innovations that address global megatrends – digital revolution, urbanisation, resource scarcity, climate change and demographic change, including:

• Energy efficiency • Circular economy • Bottom of the pyramid markets • Product to service revenue models Build resilience: Building resilience at both the company and country level is critical, and in many cases, resilience starts with innovation. How can businesses deliver innovation in an economy that works? While incremental innovation is useful, the real breakthroughs come from ‘disruptive’ innovation that drives step changes. To achieve this we need to:

• Look beyond product innovation and aim to innovate equally in processes and business models. This is where genuine change and competitive advantage lie • Embed innovation within business culture by creating an environment for experimentation and co-creation that supports disruptive innovation

–––––––––––––––––––––––––––––––––––––––––––––– 26


“ ” I see sustainability as a key driver for growth and I’m confident that we can innovate our way out of the current financial crisis and, at the same time, make the transition towards a more inclusive, healthy, equitable, resourceefficient and sustainable economy. Frans van Houten, CEO, Royal Philips Electronics 77

• Increase collaboration between businesses along the value chain and between business, universities and third sector organisations

Global Innovation Index components82

What policy interventions can help achieve this? Firstly, input factors need to be developed by:

Global Innovation Index (average)

• Strengthening financial and fiscal incentives that promote R&D • Addressing innovation barriers including international trade barriers and anti-competitive regulation

Innovation Efficiency Ratio

• Promoting international R&D collaboration • Supporting long-term economic and policy stability to encourage investment

Innovation Input Sub-Index

• Supporting social entrepreneurs and innovators • Strengthening the Technology Strategy Board to encourage partnerships • Encouraging innovation and knowledge creation in secondary and further education However, input factors are rarely enough. The demand side needs to be nurtured as well, and the public sector has a critical role to play here: • Procurement decisions should prioritise innovations that offer full-lifecycle solutions rather than focusing on upfront cost • Progressive regulation sends a signal to the market and can be a powerful driver of innovation

Institutions

Human capital & research

Political environment

Innovation Output Sub-Index

Infrastructure

Market sophistication

Business sophistication

Knowledge & technology outputs

Creative outputs

Education

ICT

Credit

Knowledge workers

Knowledge creation

Intangible assets

Regulatory environment

Tertiary education

General infrastructure

Investment

Innovation linkages

Knowledge impact

Creative goods & services

Business environment

Research & development

Ecological sustainability

Trade & competition

Knowledge absorption

Knowledge diffusion

Online creativity

–––––––––––––––––––––––––––––––––––––––––––––– 27


–––– – ––– ––––––– Inclusive ––––––––––––––– In an economy that works, including the perspectives, skills, knowledge and networks of all participants is the best way to ensure that societal goals are shared and strengthened

Why it matters According to the UN’s Expert Group on Promoting Social Integration, an inclusive society puts aside differences of race, gender, class, generation and geography, and instead focuses on inclusion and equality of opportunity. Equally important is enabling all members of society to help determine a set of social institutions that govern how that society is managed, ordered and represented.84 In an inclusive society everyone feels they belong and have a stake. Individuals co-operate at all levels of society to achieve collective goals. People feel empowered to both enjoy the benefits of society and to contribute to it. The individual benefits of an inclusive society include: • Dignity, respect and a sense of self-worth • Confidence, positive self-expression, participation, giving as well as receiving and empowerment • Independence, self-determination, freedom of choice, decision and action85

• More equality, with the advantages highlighted earlier in this report (p 12)

What success looks like An inclusive society would have: • Equal access to public services, in particular health and education • Transparency of government decision making, including financial modelling and access to public information • Active citizen participation in the decision making processes, including civic, social, economic and political activities that affect their lives. • A strong civil society to make public policies and institutions accountable. • Forums to protect and promote basic human rights • An acceptance and appreciation of cultural diversity • Democratic representation through high election turn-out 89

Wider societal benefits include: • A positive link between democracy and life satisfaction86 • Membership of organisations increases life satisfaction87 • Trust with other members of society and with key public institutions, is shown to be highly correlated with life satisfaction88 • A greater pool of knowledge, by drawing on the expertise and skills of a vast part of society

What is in it for the UK economy? • Greater diversity of ideas to address the challenges we face and the opportunities that present themselves • Greater competitiveness, leading to new opportunities

What about business? Inclusivity can deliver benefits to business, such as: • Greater trust between business and stakeholders • Greater awareness of stakeholder perspectives and ability to influence through proactive engagement • Access to a greater talent pool through recruitment outside the usual channels • Enhanced learning and development opportunities How can business help create an inclusive economy?

• Commit to full transparency of its own operations and supply chain • Harmonise auditing and measurement methods for greater transparency • Conduct active stakeholder engagement to share company activities and gather stakeholder input and ideas • Review executive and advisory board composition to address any gender imbalance and include broader representation to wider stakeholder groups • Enhance job opportunities for individuals from disadvantaged backgrounds • Provide learning and development opportunities for all employees

• More stability in society as people feel involved and included

–––––––––––––––––––––––––––––––––––––––––––––– 2288


“ ” I am very happy that the relationship between business and NGOs is changing now that people are realizing that big problems can only be resolved in partnership between the public and private sector. Paul Polman, CEO, Unilever 83

What policy interventions can help achieve this? Participation

IIRC Integrated reporting framework90

• Promote mechanisms for the advancement of marginalised groups, such as public, parliamentary and civil society forums for engagement with government

• Decentralise power to regions and cities to increase local inclusion and accountability

• Support inclusive models of value creation such as crowdfunding, sharing economy and local community initiatives

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• Increase transparency of financial modelling and of corporate performance through integrated reporting, using the framework developed by the International Integrated Reporting Council

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Organisational overview and business model

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• Increase product transparency through product labelling

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• Promote and respect religious and cultural diversity

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• Promote the use of the internet and other ICTs to remove barriers to participation such as location, education, class, gender, race and linguistic knowledge

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Responsiveness and stakeholder inclusiveness

–––––––––––––––––––––––––––––––––––––––––––––– 29


––– –– –– –– –– –– –––––––––– Strengthens communities ––––––––––––––––––––––– Resilient, active communities are vital in developing the mindset and solutions required for an economy that works

Why it matters

What success looks like

An economy that works will not only be achieved through the efforts of business and policy makers – it also requires the active participation of UK citizens, both as individuals and through their communities.

• Larger societal participation

Communities have a critical role to play if people are to be motivated to act while supporting the transition towards an economy that works. Communities usually share a geographic location, interests or values. As a result, any initiative undertaken to strengthen these common characteristics is likely to get the support of the community, increasing the chance of success. Many community initiatives across the globe, including the Transition Network,92 show that when people are given the opportunity to be part of the solution, they are far more engaged and active in addressing the issues that matter. Lack of community can also have important implications. According to recent research, loneliness can be twice as unhealthy as obesity, particularly for older people. Research shows that people who reported being lonely have a 14% greater risk of dying than the average.93

• Greater community autonomy

• Creating market opportunities through the development and commercialisation of lowimpact products and services

• Connected communities that share ideas and best practice

• Revenue generation opportunities by embracing business models that strengthen communities

• Active communities that take the initiative in addressing local challenges and meeting local needs

How can business help create strong communities?

• Communities embracing sustainability, such as the One Planet Living concept

• Adopt business models which reinvest wealth locally

What is the opportunity? • Greater autonomy and shared responsibility from communities to deliver an economy that works • Greater civic participation as citizens take responsibility for creating the society they want • Less pressure on the public purse as communities become more engaged and self-sufficient • There appears to be a positive relationship between volunteering, altruistic behaviour, time spent socialising and subjective wellbeing94

What about business? Supporting the wellbeing of communities can offer revenue generating opportunities for business 95 by: • Developing local business clusters • Developing brand loyalty by addressing consumers’ rising concerns with the environmental and social challenges

• Use marketing skills and the ability to communicate with consumers and build ‘communities of action’, committed to developing solutions • Identify ‘Bottom of the Pyramid’ opportunities that can create revenue opportunities while generating economic activity in poor communities

What policy interventions can help achieve this? Building community involvement The Cabinet Office has outlined a number of initiatives that will support broader community and civil society engagement:

• Give communities more powers and require them to integrate sustainability into their policies and programmes • Encourage people to take an active role in their communities

–––––––––––––––––––––––––––––––––––––––––––––– 30


“ ” Companies can and must make a positive contribution to wellbeing. We want to make sure that the way we operate as a company not only makes UK energy sustainable but that we do so in ways that empower communities and people to take ownership and control of their futures and of real assets. Ian Marchant, former CEO, Scottish and Southern Energy 91

• Transfer power from central to local government

• Support co-operatives, mutuals, charities and social enterprises

One Planet Living Framework98

• Publish government data 96

• Strengthen community organisations to enable them to achieve wider societal goals

Reinforce the role of education in shifting mindsets and developing creativity

• Ensure the school curriculum generates in-depth knowledge about some of the societal challenges we face. For instance, the development of an understanding of the basic principles of ecology and ecosystems can inspire people to protect and restore nature97

• Promote innovation and creativity from an early age to help develop solutions and opportunities • Strengthen the link between schools and local communities • Build sustainability considerations into the curriculum of business schools • Use local and mass media to raise awareness and support the development of creative solutions

Zero Carbon Zero Waste Sustainable Transport Local and Sustainable Materials Local and Sustainable Food Sustainable Water Natural Habitats and Wildlife Culture and Heritage Equity and Fairtrade Health and Happiness

–––––––––––––––––––––––––––––––––––––––––––––– 31


–––– – – – –– –– – – – – – – – Transition Catalysts ––––––––––– ––––––– we have identified a number of key impact areas that will catalyse the transition to an economy that works

Finance Finance can fuel innovation, enable infrastructure development and job creation, encourage long-term thinking and support the development of new business models. Issues to explore include: • Reviewing and adapting incentive structures in the finance sector to reward long-term investment and performance • Scaling up the Green Investment Bank and developing mechanisms to meet the £200 bn green investment gap estimated for 2020

Industry Industry – particularly manufacturing – drives job creation, increases economic activity and strengthens UK communities. Issues to explore include: • Evolving the industrial strategy to align with the aims of An Economy that Works, including addressing procurement and investment in emerging technologies • Introducing policy measures to support capital investment for circular industrial models

Infrastructure The UK’s energy, transport and resource infrastructure needs urgent investment. Making the right choices today will help steer the UK’s economic and social development in the future, creating jobs and supporting growth. Issues to explore include:

• Making energy efficiency the primary infrastructure investment priority in order to reduce bills permanently and tackle poverty

• Creating institutional frameworks that promote long-term policy security and corporate decision making, including integrated reporting

• Creating an infrastructure plan for energy, waste, housing, transport, water and flood defences

• Introducing governance structures to ensure wellbeing indicators and natural capital protection are reflected in the policy making process

Education and skills The UK needs people equipped with the skills to participate in and benefit from a world leading, knowledge-based economy. This applies to secondary and tertiary education, as well as professional development. Issues to explore include: • Embedding sustainability within the core curriculum of secondary and higher education, including business schools • Identifying and developing the skills needed, with a focus on STEM (Science, Technology, Engineering & Maths) and leadership skills

Governance How decisions are made, by whom and who influences them will define how successfully we make the transition to an economy that works. Transparent, inclusive decision making and shared responsibility are key. Issues to explore include:

Cities and regions Where we live and work impacts our quality of life. Many cities, towns and villages are taking an active role in creating sustainable communities, such as Transition Towns and the C40 group of cities. Enabling local decision making and responsibility for policy impacts will support more effective local solutions. Issues to explore include: • Driving change through increased local autonomy and personal responsibility, as well as scaling up local successes to city and national levels • Increasing the development of new technologies for smart cities, helping enhance the UK’s position in the rapidly growing global market At this stage our aim is to build a coalition of organisations with the skills, experience and networks to take this work forward. Our next step will be to engage with partners to develop these transition catalysts and formulate policy priorities. Join us on this journey.

–––––––––––––––––––––––––––––––––––––––––––––– 32


––– ––––– – References ––––––––– 1 | Business in the Community (June 2013) Fortune Favours the Brave. 2 | Conservative Environment Network (February 2014) Responsibility & Resilience: What the Environment means to Conservatives. 3 | http://bit.ly/1lNT5TQ

4 | Green Alliance (Spring 2009) Inside Track: Green Budget? 5 | Department of Business, Innovation and Skills (July 2013): Low Carbon and Environmental Goods and Services. 6 | www.kingfisher.com/netpositive 7 | www.btplc.com/Betterfuture/NetGood 8 | Lavery/Pennell (February 2014): The New Industrial Model. 9 | www.theiirc.org 10 | www.gesi.org/SMARTer2020 BIS press release (9th October 2013) “New initiative to support $40 bn smart cities in the UK”. 11 | All-Party Parliamentary Sustainable Resource Group (March 2014): Remanufacturing: Towards a resource efficient economy. 12 | http://bit.ly/S9TfMJ and Jaguar Land Rover Sustainability Report 2012/13. 13 | DECC and BIS (August 2013): Offshore wind industrial strategy: why the sector is important to the UK economy. 14 | Steve Holliday speech at the Spectator Skills Forum (June 2013) “The skills gap”. 15 | Office for National Statistics, “Labour Market Statistics, February 2014”. www.ons.gov.uk 16 | European Commission: Europe 2020 Targets: Employment rate. 17 | Schoon, I., Hansson, L., and Salmela-Aro, K. (2005) Combining work and family life. 18 | New Economics Foundation (November 2012) Well-being patterns uncovered: an analysis of UK data. 19 | CBI (July 2013) Tomorrow’s growth: New routes to higher skills. 20 | http://bit.ly/1lNU86i 21 | Tim Cook in the Wall Street Journal (3rd November 2013) Workplace Equality is Good for Business. 22 | IMF Staff Discussion Note (April 2011) Inequality and Unsustainable Growth: Two Sides of the Same Coin? 23 | IMF (February 2014) Redistribution, Inequality, and Growth. 24 | Matteo Iacoviello (2008) Household Debt and Income Inequality, 1963 –2003. Journal of Money, Credit and Banking. 25 & 27 | Wilkinson and Picket (2010) The Spirit Level. 26 | OECD (2013) Factbook 2013 Economic, Environmental and Social Statistics. 28 | Women & Work Commission (February 2006) Shaping a Fairer Future. 29 | Catlette, B. and Hadden, R. (2001) Contented Cows Give Better Milk: the plain truth about employee relations and your bottom line. 30 | Andrew G. Berg and Jonathan D. Ostry, IMF (September 2011) Equality and Efficiency in Finance and Development (Vol. 48, No 3). 31 | Sir Ian Cheshire in The Guardian (24th March 2011) Imagining a new, sustainable capitalism. 32 | ONS website: Measuring what matters

(Guidance and methodology section). 33 | These include the NEF’s Happy Planet Index, Oxfam’s Humankind Index and the OECD Better Life Initiative. 34 | ONS (July 2012) Measuring National Wellbeing: Report on consultation responses on proposed domains and measures. 35 | Department for Work and Pensions press release (10th February 2014) “A million workers off sick for more than a month”. 36 | Towers Watson (July 2012) Global Workforce Study.

37 | New Economics Foundation (March 2014) Wellbeing at Work: A review of the literature. 38 | WHO website: WHO definition of Health. 39 | Deutsche Bank (September 2006) Measures of Wellbeing. There is more to it than GDP. 40, 42 & 46 | CBI (July 2012) The Colour of Growth. 41 | Intergovernmental Panel on Climate Change (March 2014) Climate Change 2014: Impacts, Adaptation, and Vulnerability. 43 | Green Alliance (August 2012) Green Economy: a UK success story. 44 | Aldersgate Group (March 2011) Greening the Economy. 45 | Carbon Trust (December 2009) Building the future, today. Transforming the economic and carbon performance of the buildings we work in. 47 | Christiana Figueres in an interview with the Guardian (14th January 2014) “Christiana Figueres: ‘investment in clean technology needs to reach $1 trillion a year by 2030.’” 48 | European Commission (2014) Impact Assessment: A policy framework for climate and energy in the period from 2020 up to 2030. 54, 55, 56 & 58 | Lavery et al (July 2013) The Next Manufacturing Revolution: Non-Labour Resource Productivity and its Potential for UK Manufacturing. 49 | Green Alliance (August 2012) Green Economy: a UK success story. 50 | The Guardian (27th January 2014) “Business leaders in Davos keen to mainstream circular economy”. 51 | See WRAP website, Why It Matters. 52, 53 & 57 | Ellen MacArthur Foundation Towards the Circular Economy reports. 59 | http://bit.ly/OrQKm6 60 | Green Alliance (2013) Resource Resilient UK. A report from the Circular Economy Task Force. 61 | www.ellenmacarthurfoundation.org/education 62 | www.naturalcapitalforum.com/ceosclub 63 | Natural Capital Committee (March 2014) The State of Natural Capital: Restoring our Natural Assets. 64 | The Economics of Ecosystems and Biodiversity.(TEEB) (September 2009) TEEB Climate Issues Update. 65 | Trucost and TEEB: Natural Capital at Risk: The 100 Top Externalities for Business, 2013. 66 & 71 | UK National Ecosystem Assessment (2011) Technical Report. 67 | Faculty of Public Health (2010) Great Outdoors: How Our Natural Health Service Uses Green Space To Improve Wellbeing. 68, 88 & 94 | New Economics Foundation (April 2012) Well-being evidence for policy: A Review.

69 | Forest Trends, the Katoomba Group and UNEP (May 2008) Payments for Ecosystem Services: Getting Started. 70 | International Finance Corporation (IFC) (January 2012) Performance Standards on Environmental and Social Sustainability. 72 | Aviva (19th December 2013) Press Release: “Aviva commits £500 million to invest in UK infrastructure”. 73 | Professor John Kay (July 2012) The Kay Review Of UK Equity Markets And Long-Term Decision Making. 74 | Policy Exchange (September 2009) Delivering a 21st Century Infrastructure for Britain. 75 | Presentation by Mike Barry, Head of Sustainable Business, M&S. 76 | M&S Plan A report, 2013. 77 & 83 | Dutch Sustainable Growth Coalition (October 2013) Towards Sustainable Growth Business Models. 78 | OECD (2007) Innovation and Growth. Rationale for an Innovation Strategy. 79 | European Commission (2013) Innovation Union Scoreboard 2013. 80 | National Geographic (March 2011), Measuring the Impact of Humans on the Planet. 81 | Green Alliance (2013) Nurturing UK Cleantech Enterprise. Four steps to improve low carbon innovation. 82 | Johnson Cornell University, INSEAD, WIPO (2013) The Global Innovation Index 2013. The Local Dynamics of Innovation. 84 | Expert Group Meeting on Promoting Social Integration, Helsinki, July 2008. 85 | Quaker Peace and Social Witness (December 2011) Promoting an inclusive society. A practical toolkit for friends. 86 | Helliwell, J., and Huang, H. F., (2008), How’s your government? 87 | Pichler, F. (2006), Subjective quality of life of young Europeans. 89 | Adapted from DESA (2009) Creating an Inclusive Society: Practical strategies to promote social inclusion. 90 | http://bit.ly/1kc6d5E 91 | Ian Marchant writing on Guardian Sustainable Business blog (5th October 2011) “Big business and social enterprise energise the community”. 92 | www.transitionnetwork.org 93 | The Guardian (16th February 2014) “Loneliness twice as unhealthy as obesity for older people, study finds”. 95 | M. Porter and M. Kramer (2011) Creating Shared Value. 96 | Cabinet Office (May 2010) Building the Big Society. 97 | WBCSD (February 2010) Vision 2050 & Fritjof Capra (1996) The Web of Life. 98 | Bioregional (www.oneplanetliving.net) & WWF (http://bit.ly/1far1f5) 99 & 100 | Conservative Environment Network (February 2014) Responsibility & Resilience: What the Environment means to Conservatives. 101 | http://huff.to/1qeAscQ 102 | http://bit.ly/LNsutQ

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–––– –– – – – – Individual AG Members ––––––––––

Aldersgate Group individual members are Parliamentarians from all major political parties and prominent leaders from business, politics and civil society

Andrew George MP

Kerry ten Kate

Peter Aldous MP

Liberal Democrat

Director, Business and Biodiversity Offsets Programme, Forest Trends

Conservative, Member of Environmental Audit Committee

Lord Oxburgh

Peter Jones OBE

Former Non-Executive Chairman, Royal Dutch Shell

Former Director, BIFFA

Barry Sheerman MP Labour, Co-Chair of Policy Connect

Caroline Lucas MP Green

Philip Wolfe Labour, Former Deputy Prime Minister

Former Director General, Renewable Energy Association

Founder and Senior Partner, Advancing Sustainability LLP

Lord Teverson

Professor Ian Bateman

Liberal Democrat

Environmental Economics, University of East Anglia

Dinah Nichols CB

Lord Whitty

Professor Paul Ekins

Former Director General, Defra

Labour, Former General Secretary of the Labour Party

Energy and Environment Policy, UCL

Lord Prescott

Chris Tuppen

Emma Howard Boyd

Roy Tindle

Director, Jupiter Asset Management

Martin Horwood MP

Chair, London Thames Gateway Forum

Ian Liddell-Grainger MP

Michael Meacher MP

Conservative

Labour, Former Defra Minister

John Cox CBE

Nick Robins

Conservative

Former Chairman, UK CEED

Co-director, United Nations Environment Programme

Tom Delay

Liberal Democrat

Sir John Harman Former Chair, Environment Agency

Tim Yeo MP

Chief Executive, Carbon Trust

John Edmonds Former President, TUC

Pamela Castle OBE Former Chair, Environmental Law Foundation

Wendy Alexander

Peter Ainsworth

Former Opposition Leader and Member of Scottish Parliament

Jonathon Porritt CBE Founder, Forum for the Future

Former Shadow Secretary of State for Defra While members support this publication and provided extensive input, individual recommendations cannot be attributed to any single member and the Aldersgate Group takes full responsibility for the views expressed.

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“The world faces some sickeningly big problems, including ageing populations and growing pressure on energy, food and water. But leaps in material science offer exciting potential to improve lives and tackle our greatest challenges… We should encourage and excite the younger generations, letting them witness what the UK can achieve when we set our sights high.”99 Sir James Dyson, founder of Dyson Ltd “Being a politician or a business leader has never been more demanding. But it has also never been more important to make long-term decisions about balancing the demands of economic growth, society and the environment. Doing so will secure not only a better quality of life but the UK’s future economic prosperity.”100 Sir Stuart Rose, non-Executive Chairman, Ocado “Leading countries and leading companies can do something magical. They can create the future… They can inspire changes much greater than they could make alone, and they can act as catalysts for a wider movement of people that want to change direction but can’t always see how to do it.”101 Paul Polman, CEO, Unilever “Leaders should examine deeply the purpose of their business activity and define their contribution to society beyond financial performance. The next generation of CEOs will spend more time than ever looking at the degree of enacting their core purpose – and if they’re bold enough the prizes can be enormous.”102 Ed Williams, CEO, Edelman

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